Within the last few months, the Financial Industry Regulatory Authority (FINRA) has filed a number of proposed rule changes with the Securities and Exchange Commission (SEC). Among the proposed changes includes amendments to the Code of Arbitration Procedure for Customer Disputes (“Customer Code”) and the Code of Arbitration Procedure for Industry Disputes (“Industry Code”). These amendments seek to impose additional requirements and restrictions regarding the expungement of customer dispute information. Securities firms and financial advisors have expressed concerns about these proposed changes, as they would make the expungement process even more difficult for those wishing to have inaccurate, frivolous, or false customer dispute information removed from the Central Registration Depository (CRD) and BrokerCheck. The Securities Industry and Financial Markets Association (SIFMA) has recently weighed in on these proposals, objecting to several of these rule changes that may carry negative and lasting consequences for financial advisors victimized by inaccurate customer dispute information.
Understanding SIFMA’s Primary Concerns
SIFMA issued a response to FINRA’s proposed rule changes, highlighting its objections to these potential amendments. The formal letter begins by expressing support for FINRA’s current practice of making customer dispute information publicly available to investors through the CRD and BrokerCheck, as long as the information is complete and accurate. However, FINRA’s investment in protecting the public from financial advisors or firms acting in bad faith has led to a complicated expungement request process. Rather than investigating a customer complaint, FINRA adds the customer dispute information to the CRD and BrokerCheck without questioning or evaluating its validity. This means that many financial advisors are struggling to have this erroneous information removed, but FINRA is making moves to complicate this process even further. Below are some of SIFMA’s main concerns about these proposed rule changes.
Limiting the Grounds for Expungement
In SIFMA’s letter, it states, “By strictly limiting the grounds for expungement to the Rule 2080(b)(1) grounds, the Proposal would not allow for the expungement of inaccurate or misleading customer complaints, which are currently allowed under the Rule 2080(b)(2) grounds, and which would undermine FINRA’s stated goal of maintaining a CRD and BorkerCheck system free of inaccurate or misleading information.” SIFMA continues to recommend that FINRA include the Rule 2080(b)(2) grounds for expungement in the Proposal to restore the status quo and provide those struggling with inaccurate customer dispute information with a clear path to expungement.
Pushing Back on a Proposal to Require Unanimous Panel Decisions
Another point of contention for SIFMA is FINRA’s stated proposal to require that a unanimous panel make expungement decisions of independent arbitrators. Under the current system, an expungement request is accepted by a majority vote, not a unanimous vote. SIFMA’s letter clarified that the “Proposal would require unanimous panel decisions, likely resulting in the unfair denial of expungement in meritorious cases,” proceeding to recommend that the unanimity requirement be removed from the Proposal.
Keeping the Panel of Arbitrators Consistent
In the response letter to FINRA’s proposed rule changes, SIFMA objected to an amendment that would prohibit the same panel that decides in favor of a firm (and not a customer) to also determine whether the expungement of this complaint is appropriate. The letter stated, “we recommend that if a customer arbitration or on-behalf-of arbitration closes other than by award or award without hearing, then the associated person should continue to be allowed to request an expungement-only hearing before the same panel from the customer arbitration.” Additionally, SIFMA stated that any customer arbitration or on-behalf-of arbitration closing other than by award or award without hearing should release the member firm from the required payment of an additional member surcharge and process fee for a straight-in request. SIFMA identified these charges as a “duplicative payment provision” and recommended that FINRA remove this requirement from the proposed rule changes.
Keeping Up With FINRA’s Evolving Rule Changes
As a professional in the financial industry, keeping up with the ever-shifting rules and regulations can be daunting. However, it’s essential to familiarize yourself with any amendments to current procedures, as even small-seeming changes can carry significant consequences. As we wait for the SEC to issue their ruling on FINRA’s proposed changes to the expungement request process, you may find it helpful to discuss your concerns with a trusted and experienced securities law professional. Those struggling with inaccurate or false customer dispute information can work with their attorney to understand their situation and explore their available options. Together, you and your attorney can identify the most strategic path forward to help you achieve your goals.
If you need help pursuing an expungement request, call Judex Law LLC today at (303) 523-4022 to discuss your options with a dedicated and experienced securities law attorney.